Former SEC attorney Jerry W. Markham currently teaches corporate and international law at the University of North Carolina at Chapel Hill. Heretofore, he has written extensively on the history of the regulation of commodity futures trading. The work under review is his first significant foray into the broad study of financial history and, quite frankly, it shows. Given the high costs of purchasing and reading these three volumes, the reviewer feels an obligation to the academic community not to mince words: the thesis of this review is that Markham’s opus is seriously flawed.

Markham clearly wanted his book to be a Narrative in the Grand Olde Style, not an academic monograph seeking to prove a point, so not a single table or equation graces the volume. Moreover, the book does not present a thesis so much as an attitude. Like many Americans, Markham views the financial sector with suspicion. He fails, therefore, to give full credit to the crucial role of finance in U.S. economic development. For instance, he claims that banks issued notes “without limits” (1:132; 1:133), that “speculators” made “vast fortunes” (1:109), and that investors fell easy prey to any old “speculative frenzy” (1:98) that happened to form. “Every advance in finance,” Markham opines, “was accompanied by fraud and over-reaching by the unscrupulous” (1:380). Busy with such hyperbole, he fails to explicate how intermediaries, speculators, and investors interacted to finance the mightiest economy on Earth.

Markham ignores too many important secondary works to be taken seriously as an authority in financial history. For instance in Volume 1, which covers the colonial period to 1900, he fails to cite any of the following economic historians: Howard Bodenhorn, Stuart Bruchey, David Cowen, Thomas Doerflinger, E. James Ferguson, Gary Gorton, Gregory Hunter, Naomi Lamoreaux, Diane Lindstrom, John Majewski, Cathy Matson, John J. McCusker, Ranald Michie, George Rappaport, Winifred Rothenberg, Mary Schweitzer, or Richard Sylla. Moreover, he pays scant attention to the important contributions of Stuart Banner, Edwin Perkins, and Hugh Rockoff, among others. In short, the book is not based on anything approaching a comprehensive review of the extant literature.

Markham also fails to survey significant primary source material. He cites a few court cases, an occasional old legal treatise, some congressional reports, a handful of newspaper articles, and Joseph Martin’s descriptions of the Boston stock market. More maddening still, Markham cites recent articles from the Wall Street Journal, the Washington Post, the New York Times, and the Raleigh News & Observer as authorities on historical subjects! Journalists often rely on the same outdated, often nineteenth-century, secondary sources that Markham also leans upon, including William Gouge’s infamous book on antebellum banks and an array of late nineteenth-century hard money polemicists. Worst of all, many of Markham’s assertions are completely undocumented, allowing him to breathe life into a series of apocryphal stories of questionable origins and unlikely authenticity (see, for example, 1:50, 68).

Historians do not have to uncover new archival sources or re-examine known sources in a fresh manner in order to make a contribution. A good story well told will always be appreciated. Due to the inadequacies of Markham’s prose, however, few readers will come to appreciate financial history’s many good stories. The book reads like a rough draft, not a polished book. Numerous simple declarative sentences, at times virtually unconnected conceptually, and rampant use of the passive voice make the book difficult to read. Consider, for example, the following excerpt, which is all-too-typical of the author’s style: “Wheat farm bonds on Canadian lands were sold in Chicago. Those bonds paid 7 per cent per annum. Spitzer, Rorick & Co. offered municipal bonds that netted from 4.25 to 5.75 percent. Seney, Rogers & Co. sold real estate gold bonds and mortgages on Chicago property. Investments from $100 to $50,000 were sought” (2:62).

Markham regularly incorporates quotations of secondary authors into his own sentence structure, as if the words emanated from an historical figure instead of an historian. Only when the reader turns to the endnote, at the end of the volume and difficult to find because of the book’s odd numbering scheme does it become clear that the ‘great quotation’ is that of Bray Hammond, Paul Studenski, or Margaret Myers, not that of Robert Morris, Alexander Hamilton, or Jay Gould.

Indeed, Markham displays precious little historical sense. He notes that “colonial governments eventually found themselves issuing the paper currency advocated by Franklin and others,” then goes on to describe paper money emissions made decades before Franklin’s birth (1:50). He describes a retail purchase that George Washington made in Maryland in 1770 and bolsters it with Madame Knight’s famous discussion of prices in New England in 1704 (1:53-54). I wonder what a judge would say to the following reasoning: “The worldwide depression in 1765 added to the economic problems encountered by the American colonies. A creditor of Paul Revere sought to attach his property for a debt of ten pounds. Nevertheless, some consumer protection was appearing. A law against usurious loans was adopted in New York in 1661″ (1:56)? Similar examples abound (1:63, 70, 83, 126).

Outright errors also abound. Some of the more technical errors, like confusing “bottomry” loans (on ships) with “respondentia” loans (on cargo), would perhaps be partially understandable were not the author a legal scholar (1:6). Other errors, like calling a tontine “a form of lottery scheme” (1:81), referring to bills of exchange as “currency” (1:48), and confusing banknotes and bills of credit (1:72) suggest that Markham is not conversant with the financial terminology of the era. Other errors probably stem from the volume’s impoverished editing. Consider, for example, his “definition” of a put option: “A put option entitled the option holder to sell stock to the writer of the stock [sic] at a specified price.”

Markham makes little use of financial theory. In numerous places, for instance, he could have explained his anecdotes using basic financial concepts like adverse selection and moral hazard (1:38-39, 55). In other places, Markham makes wild comparisons between past and present practices. For instance, he somehow concludes that the “exchange of flour in one state for flour in another in order to save transportation expenses” is “an early form of a swap transaction” (1:70). He describes U.S. Deferred bonds as “when issued” securities instead of discount (zero coupon) bonds (1:119). Similarly, he fails to see that the market correctly priced convertible bank notes as discount bonds (1:132).

The very subtitle of Volume 2, From J.P. Morgan to the Institutional Investor (1900-1970), is misleading because it implies that Morgan predated institutional investors. In fact, institutional investors, particularly life insurance companies and mutual savings banks, were important players in the nation’s financial markets by the 1860s, not the 1960s. True, institutional investors largely eschewed common stocks until the 1960s, but it is well known that equity investment represents a small percentage of external finance flows. Markham’s assertion that “the first seven decades of the twentieth century witnessed more challenges to American finance than all the years before” seems at best a matter of opinion and, at worst, another example of the author’s lack of historical perspective (2:369).

Outright errors and misleading statements again abound in Volume 2. For instance, Markham claims that the Blue Sky Laws were passed “to stop the sale of worthless securities” (2:370). Law professor Paul Mahoney, however, has shown that commercial banks fought for the passage of those securities regulations in order to disembowel their major competitor, the commercial paper market. Markham also asserts that “the Federal Reserve legislation [of 1913] adopted the concept of ‘open market’ operations in which the Federal Reserve banks bought and sold government securities and eligible private debt issues in order to influence the money supply” (2:46). In fact, the Fed discovered the monetary policy uses of open market operations some years after its establishment (http://minneapolisfed.org/pubs/region/88-08/reg888f.html) and at first favored private paper and municipal warrants over Treasuries (David Marshall, “Origins of the Use of Treasury Debt in Open Market Operations: Lessons for the Present,” Federal Reserve Bank of Chicago Economic Perspectives, 2002 1Q: 45-54).

Time and space limitations prevent a fuller discussion of the shortcomings of Markham’s mammoth book. Volume 3, From the Age of Derivatives into the New Millennium, appears to contain fewer outright errors than the first two volumes, but it too suffers from a lack of focus, editing, evidence, and documentation. Indeed, only six pages of notes support 357 pages of text. The conclusion to the third volume confidently predicts the demise of paper money, paper correspondence, brick-and-mortar stores, and specialized financial services firms. “Undoubtedly, Wal-Mart and its like,” Markham claims, will supply consumers with mortgages, mutual funds, insurance policies, and “a host of other financial services” (3:365). Markham does not make clear, however, why Wal-Mart will fare any better than Sears did.

To conclude, I do not suggest that you use this opus, but if you do, use it with great care. The historical development of U.S. financial markets and institutions is an enormously important and complex topic. A quality, scholarly synthetic overview is still desperately needed.

Robert E. Wright is the author of The Wealth of Nations Rediscovered: Integration and Expansion in American Financial Markets, 1780-1850 (Cambridge, 2002), Hamilton Unbound: Finance and the Creation of the American Republic (Greenwood, 2002), History of Corporate Finance: Development of Anglo-American Securities Markets, Laws, and Financial Practices and Theories (Pickering & Chatto, 2002), Origins of Commercial Banking in America, 1750-1800 (Rowman & Littlefield, 2001), and three forthcoming works tentatively titled Corporate Governance in Historical Perspective: The Importance of Stakeholder Activism (Pickering & Chatto), Mutually Beneficial: The Guardian and Life Insurance in America (New York University Press), and Financing American Economic Growth: The Philadelphia Story (New York University Press).